Late last month, Councilmember Kenyan R. McDuffie introduced B 25-0609, entitled the Protecting Affordable Loans Amendment Act of 2023, that proposes to opt the District of Columbia out of sections 521-523 of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA). Sections 521-523 of DIDMCA empower state banks, insured state and federal savings associations, and state credit unions to charge the interest allowed by the state where they are located, regardless of where the borrower is located and regardless of conflicting state law (i.e., “export” their home state’s interest-rate authority). But another section of DIDMCA (section 525), permits states to opt out of sections 521-523 via legislation. If the bill passes, the District will join Colorado, discussed here, Iowa and Puerto Rico as the only jurisdictions currently opting out.
B 25-0609 is intended to prevent out-of-state lenders from charging rates higher than the District’s usury cap of 24%. However, whether the legislation will be effective is unclear. There is federal precedent governing interest-rate exportation that supports the conclusion that, when analyzing whether an opt-out should apply, loans are made in the out-of-state depository institution’s location, not the borrower’s state, if the originating depository institution’s lending program is properly structured.
The legislation also contains an anti-evasion provision. The Code of the District of Columbia would be amended to adopt a totality of the circumstance test to determine the “true lender” of a consumer loan. Specifically, the definition of “loan” would be amended to include “money or credit provided to a consumer in exchange for the consumer’s agreement to a certain set of terms, including, but not limited to, any finance charges, interest, or other payments, closed-end and open-end credit, retail installment sales contracts, motor vehicle retail installment sales contracts, and any deferred deposit transactions.” According to the territorial application provision “a loan shall be considered as having been made in the District if the lendee [borrower] is a resident of the District at the time the lender receives either a signed writing evidencing the transaction or modification, or a written or oral offer of the buyer, lessee, or debtor to enter into or modify the transaction.”
“Lender” would be defined to include any person that offers or makes a loan, facilitates a loan for a third party, or acts as an agent for a third party in making or servicing a loan, including any person “engaged in a transaction that is in substance a disguised loan or a subterfuge for the purpose of avoiding this chapter,” and that:
- Holds, directly or indirectly, the whole, predominant, or partial economic interest, risk or reward in the loan;
- Holds the right, requirement, or first right of refusal to acquire, the loan or a receivable or interest in the loan; or
- The totality of the circumstances indicate that the person is the lender and the transaction is structured to evade the Code’s requirements.
Currently, the bill is with the Council’s Committee on Business and Economic Development for consideration.